How Unions shake down contractors

134 Cong Rec S 16099, *

Congressional Record -- Senate

Friday, October 14, 1988;
(Legislative day of Wednesday, October 12, 1988)

100th Cong. 2nd Sess.

134 Cong Rec S 16099

REFERENCE: Vol. 134 No. 146

TITLE: OPERATING ENGINEERS

SPEAKER: Mr. HATCH

TEXT: [*S16099] Mr. HATCH. Mr. President, I rise to direct the Senate's attention to a defect in our Federal labor laws that permits a union to coerce small and medium-sized construction contractors into renewing union contracts against their will.

Some union officials are selectively using an obscure trust fund contribution provision, coupled with section 302 of the Labor Management Relations Act, to force small construction companies to sign collective-bargaining agreements. The shakedown scheme works as follows:

A small construction company is hired as a subcontractor on a building site. Let's say the employees of this small company belong to the Laborers Union. While on the job, they perform maybe 1 or 2 hours a week of work that is within the jurisdiction of the Operating Engineers Union. The Operating Engineers go to the general contractor and complain. Worried about losing the work, the small subcontractor agrees to sign a bargaining agreement with the Operating Engineers to cover its employees for the 1 or 2 hours work within that union's jurisdiction.

Now, here's the kicker. The small contractor is told that he will have to pay into the Operating Engineers pension or benefit plan, but only for the hours its employees work as operating engineers. This is a relief because the contractor is already paying into the Laborers Union trust fund for the hours worked by its employees.

A year or two later, Operating Engineers approach the small contractor and demand a new collective-bargaining agreement. The contractor says "no" and suddenly finds himself sued by the Operating Engineers trust fund for all hours worked by the small contractor's employees, both as Laborers and Operating Engineers. "What about the promise you made me 2 years ago?" asks the small contractor. "It doesn't count," says the union now, "because it wasn't in writing. Sure, we misled you, but if we go to court, we will win." And, Mr. President, I fear that the union may be right.

Of half a dozen such cases that have come to my attention in recent months, the most glaring is OPERATING ENGINEERS PENSION TRUST v. GIORGI, 788 F 2d 620 (9th Circuit, 1986). In my opinion, this case clearly demonstrates the manner in which union and pension fund representatives are using the "all hours worked" requirement to cover up common coercion of small employers.

Luigi Giorgi and his wife operated a small subcontractor business in the construction industry. Mr. Giorgi ran the business, Mrs. Giorgi kept the books, and Aaron F. Flores was their employee. On April 12, 1979, the Giorgi's company was working at a building site. The general contractor at the site had signed a collective-bargaining agreement with Local 12 of the Operating Engineers Union. Union officials discovered that Mr. Flores was at the work site operating a skip loader, a task within the technical jurisdiction of the Operating Engineers.

The union notified the general contractor that Giorgi's company could not stay on the job site unless Mr. Giorgi signed a collective-bargaining agreement with the Operating Engineers.Given the choice of signing a short form agreement or being thrown off the work site, Mr. Giorgi signed. Before doing so, however, Mr. Giorgi asked the union's business agent whether he would be required to contribute to the operating engineers trust fund for hours Mr. Flores worked as a laborer and was assured by that same business agent that he would be liable only for the hours Mr. Flores operated a skip loader.

The short form signed by Mr. Giorgi incorporated the master labor agreement between the Operating Engineers and the Southern California General Contractors. The master agreement authorizes the Labor Management Adjustment Board to interpret and enforce the master agreement.

In 1972, 7 years before Mr. Giorgi signed the agreement, the adjustment board adopted a resolution which provided:

When an employee has been dispatched by the union to a contractor and the employee performs any work whatsoever covered by the agreement, the contractor shall be obligated to pay fringe benefit contributions to the trust at the required rate for each and every hour worked by the employee or paid for by the contractor.

The adjustment board noted that an employee sometimes is a member of more than one union and may be dispatched by more than one union to the same job. The adjustment board stated that this practice conflicts with the intent of the collective bargaining agreement and that therefore:

Any employee dispatched by the union under this agreement shall perform only work covered by this agreement, and fringe benefit contributions shall be payable on all hours worked by such employee or paid for by the contractor.

For almost 2 years after signing the agreement, Mr. Giorgi paid some $9,500 to the Laborers' Union trust fund, relying upon the representation of the Operating Engineers' business agent. The master labor agreement and the resolution of the adjustment board, documents that would have advised Mr. Giorgi that he was required to pay the Operating Engineers even for the time Mr. Flores worked as a laborer -- language agreed to 7 years before he signed the contract -- were never presented to him. The union and the trust funds allowed Mr. Giorgi to rely on the representations of the local 12 agent. He thought the business agent's word was good.

On May 6, 1983, the Operating Engineers trusts filed an action to require Mr. Giorgi to contribute to the trusts for all of the hours Mr. Flores worked, not just as a ski loader, but also for work performed as a Laborer -- even though Mr. Giorgi had already contributed to a pension plan for the hours Mr. Flores worked as a laborer.

The case went to trial. The U.S. district court held that the oral agreement between Mr. Giorgi and the business agent was not enforceable. But the court, sensing the glaring inequities of this situation, attempted to fashion relief for Mr. Giorgi. It held that since Mr. Giorgi was not made aware of the adjustment board's 1972 [*S16100] resolutions, he was not bound by its requirements.

The Ninth U.S. Circuit Court of Appeals reversed the lower court. It held that Mr. Giorgi would be required to pay benefitsto the Operating Engineers trusts for all the hours that Mr. Flores had worked, regardless of the misrepresentations of the union representative. The Court followed its earlier decisions in WAGGONER v. DALLAIRE, 649 F.2d 1392 (9th Cir. 1981), and MAXWELL v. LUCKY CONSTRUCTION COMPANY, INCORPORATED, 710 F.2d 1395 (9th Cir. 1983), holding that the requirement of a written agreement found in Section 302 (29 U.S.C. section 186) prohibited the consideration of oral agreements between an employer and a union representative when interpreting a collective bargaining agreement.

Justice Alex Kozinski, in a concurring opinion, expressed grave misgivings about the logic of the court's opinion. He examined the Court's ruling in light of the inequities presented by the facts of the case:

The writing requirement of section 302(c) is in the nature of a statute of frauds and appears to have been intended to avoid corrupt practices in the administration of employee welfare funds. [citation omitted] It is quite a leap, however, from a provision requiring that agreements be in writing, to one that abroqates basic principals of contract law: mutual assent, estoppel, and fraud in the inducement.

While protecting trust funds from fraud is important, I cannot believe that the Congressional purpose is served by holding a tiny subcontractor to a massive contract, the contents of which he has never seen and as to which the union's representative has lied." 788 F.2d at 624.

Regarding the intentional nature of the fraud by the union and its representatives, Justice Kozinski stated:

Once put on notice that its agents were misleading some employers, and many more employers were signing the short form agreement without fully appreciating its terms, what did Local 12 of the Operating Engineers do? Did it clarify the short form agreement? Did it provide copies of the master labor agreement and relevant orders of the Adjustment Board to signatory employers? Did it prepare a simple, concise summary of the key terms of the full contract and attach it to the short form agreement? Did it modify the short form agreement to disclaim any oral representations made by the union's business agent? As far as this record reflects the union has done none of these things. And why should it? After all, it can be confident that employers caught in the web of misstatement or misunderstandings spun by its agents will be without legal recourse, and that any employers foolish enough to resort to the court will have to bear the trust fund attorney's fees for defending the suit.

Kozinski concluded:

To reach this result requires, in my view, a very broad reading of a statutory provision that calls for nothing more than a written trust agreement, a provision intended to avoid fraud on the trust fund. I think the drafters of the legislation would be surprised to learn that it has been interpreted to sanction fraud by the trust fund.

A more recent case in which the all hours worked clause has been used to extort a contractor is the case of Operating Engineers Pension Trust, et. al. versus Steve L. Gilbert, et. al., which was settled out of court in September 1988, after a brief trial in the U.S. District Court for the District of Nevada.

Steve Gilbert is president of a small construction company, Gilbert Development Corp., which has offices in Utah and Nevada. Between 1978 and mid-1983, Mr. Gilbert maintained a contract with Local 12 of the Operating Engineers Union on a construction job in Las Vegas. Occasionally Mr. Gilbert or his son Dale would move a piece of equipment in order to expedite the job. In 1979 both received written exemptions from making Operating Engineers trust fund contributions in their own behalf from the Operating Engineers. Three other employees had their benefits paid exclusively to the Operating Engineers. Eight others had their benefits paid to either the Teamsters or Laborers Union. Seven other employees were nonunion. Another employee had his benefits paid to both the Laborers Union and the Operating Engineers.

Trouble began after Mr. Gilbert refused to renew the contract with local 12 after its expiration June 30, 1983. In December of that year, Mr. Gilbert was billed $6,500 for trust fund contributions for 1981 and 1982 for an employee who had occasionally moved construction equipment in 1981 but never in 1982. Although Mr. Gilbert stated in an affidavit filed in the law suit that he did not believe he owed the Operating Engineers any of this money, he decided to pay it rather than endure any more harassment from the union. Mr. Gilbert added a notation on the back of the check stating that its deposit would constitute full settlement of all claims made against him by the union for trust fund contributions earned to date. The union cashed the check. A short time later, however, the union began pressuring Mr. Gilbert to sign a new contract and, when he refused, the trustees of four Operating Engineers trust funds sued Mr. Gilbert for more than $1 million, including unpaid trust fund contributions, interest, audits and attorney's fees.

A breakdown of the damages claimed by the trust funds showed them to be related to the same job activities that the union previously stated would be covered by the claim of $6,500. The claim included more than $100,000 in unpaid trust fund contributions and interest relating to Steve and Dale Gilbert, even though both had been specifically exempted from trust fund coverage in a local 12 memorandum dated August 3, 1979. The remainder of the $1 million claim covered work performed by the eight employees who had their benefits paid to either the Teamsters or Laborers trust funds, the nonunion employees, one operating engineer, the employees who had benefits paid to both the Laborers and Operating Engineers Unions, and an unknown employee who, according to company records, had never worked on the job site at all.

Steve Gilbert, after an unsuccessful attempt to obtain assistance from the Federal Bureau of Investigation and the U.S. Department of Labor, settled the case in early September 1988 for an undisclosed amount believed to be in the range of $175,000 to $200,000. Mr. Gilbert's attorney told my staff that Mr. Gilbert still felt that he did not owe any of the money but had settled because he thought he would lose the case in view of the recent Ninth Circuit Court decisions in Giorqi and similar cases.

Gilbert Development was billed an arbitrary 40 hours a week for each employee, even though some had worked much less than that. Few, if any, of these employees had ever performed any operating engineers work and those who had -- except for the one operating engineer -- were said to have done little more than occasionally roll a piece of equipment out of the way.

Mr. President, I think it is sad when the Nation's labor laws have been perverted in this manner, and it is a sorry commentary that the primary perpetrator of this abuse is the Operating Engineers Union. This union was cited as having a history of racketeering by the 1986 report of the President's Commission on Organized Crime. It came in for further criticism for sleazy work practices in the Interim Report on Corruption and Racketeering in the New York City Construction Industry, released in June 1987 by the New York State Organized Crime Task Force. And, it is the same union whose operations in the States of Louisiana and Ohio were the subject of extensive hearings by the Committee on Labor and Human Resources in 1984. As a result of information uncovered at those hearings, the Justice Department obtained criminal convictions of six officials of Local 406 of the Operating Engineers Union in Lake Charles, LA. I do not think the union will stop this abusive practice on its own.

To prevent further abuses of this sort, I intend to introduce legislation in the next session of Congress aimed at eliminating incidents of fraud perpetrated by unions when soliciting employers to enter into collective bargaining agreements. Our Federal labor laws allow construction unions many advantages compared to union members in other industries. We have been repeatedly told that this special status is necessary because of the unusual nature of construction work. Yet, I cannot believe that this favored status should permit what would normally be called a shakedown. And, we certainly should not tolerate victims of this coercion to be forced to pay the union's legal fees just because they sought simple justice. Federal labor law should not sanction fraud, deception, and coercion